Introduction
The current paper discusses value-added tax (VAT), the significance of tax morality for people and country, and their effect on tax law compliance in the UAE. The current section summarizes the main findings on the importance of tax morality, the impact of VAT on the economy, tax compliance for 2018-2021, and provides recommendations for improving tax morality. Despite all the government’s efforts and adopted laws to collect VAT for the country’s development, the commitment can be insufficient if people have low tax morality, which indicates the need for its improvement.
Summary
Taxes are an essential aspect of the state’s functioning, but their collection can cause population resistance. The tax systems have a long history, which even reaches the times of ancient Egypt. Despite such a lengthy development background, modern tax systems still develop and face serious problems. As oil revenue decreased, the UAE adopted the Federal Decree-Law no. (8) to establish the VAT several years ago. The introduction of VAT increases the cost of products and services for consumers. On the one hand, more taxes will allow the state to finance health care, defense, and other areas to improve the population’s well-being. On the other hand, higher prices reduce citizens’ savings and can cause their discontent. Tax morality is a concept that describes the commitment of citizens to pay all taxes imposed by the state. The state and citizens’ well-being largely depends on this morality.
The concept of tax morality is relatively new, but it is increasingly attracting attention. Tax morality embraces not only the level of desire to pay taxes but also the attitude of citizens to the tax system and their relationship with the government. Taxes are the key sources of income for the state to finance the development of the state subsequently. The lower the desire to pay taxes, that is, low tax morality, the fewer resources for the country’s development and the support of citizens. For this reason, the population’s morality is essential for state functioning and prosperity. At the same time, taxes must not be a heavy burden for the people since citizens will not afford the products necessary for their well-being with too high taxes.
The decline in oil profits has led the UAE government to seek additional sources to support the state’s pace of development. The mentioned law imposes a VAT with a 5% rate for a significant number of end products and services. Paying taxes when making a purchase is inevitable, and citizens cannot avoid this tax. Still, it can affect tax morality regarding attitude to the system and the state and interfere with compliance with future laws. In case of the wrong approach to introducing taxes, confidence in the government will decrease. Moreover, a significant burden falls on business operators as tax collection agents, which can damage their reputation and business. This situation underlines the importance of improving tax morality for the UAE population.
After the adoption of Federal Decree-Law no. (8), there have been changes in the UAE economy. The first year saw a decrease in VAT registrations, but their number increased after some time of adaptation. Moreover, the introduction of VAT caused public concern about the subsequent taxes and the negative impact on personal savings. Nevertheless, the government has received new opportunities for investing in the country’s development and attracting additional sponsors. By 2021, revenues amounted to about $26 billion, which allowed a high sovereign credit rating and strengthened the field curve for dirham. Improved tax morality is necessary to maintain high tax revenues.
Observation
Key observations needed to provide recommendations in this study include aspects affecting tax morality level in citizens and its current assessment in the UAE population. Many studies have researched the issue of influence factors for morality, and therefore one can distinguish several separate components. First of all, respect for laws, including the payment of taxes, is formed by the personal qualities of citizens. Upbringing, culture, level of education, and even religiosity can influence their opinions. A strong effect on the attitude to taxes is exerted by the person’s environment – relatives, friends, and other people who are part of the circle of interaction. In addition to individual-level factors, one can also distinguish broader trends.
An example of a more significant influence is the GDP level – the higher it is, the better the commitment to paying taxes. Socioeconomic conditions are also an essential factor since citizens, who feel the support and care of their state, trust the government more. Moreover, a high level of education is also significant since the educated population understands the importance of taxes. There is also a higher morality among citizens than non-citizens and in the younger generation in socioeconomic terms. Such structural factors as trust in the government and its bodies, faith in the system existing in the country, and equality are also critical. Studying factors that contribute to tax morality allows allocating directions to provide recommendations to improve it.
An important aspect is understanding the current level of tax morality among UAE citizens. Surveys demonstrate that most citizens consider the tax with a 5% rate moderate and recognize that the tax system is fair. Moreover, almost all UAE citizens recognize that paying taxes is an essential civic duty and that money is used to improve the population’s lives. Citizens also note the need to inform the public about taxes and propose some concessions for small businesses, to which the tax payment can cause a loss. The study also includes interviews with several people interested in tax policy. All of them note that tax evasion is unethical and consider it a socioeconomic problem caused by unemployment. They also highlight the importance of education in tax issues. Thus, one can conclude that the inhabitants of the UAE have a high tax morality, and efforts should be aimed at supporting it.
Recommendation
Based on the findings presented earlier in the current paper, several recommendations can be distinguished to establish and maintain a high tax morality among the UAE population.
- Education. Supporting the high level of education of the population, in particular tax awareness, is key to improved tax morality. Understanding the need for tax payments to maintain the population’s well-being will support compliance. Survey participants and tax policy stakeholders noted the need to disseminate knowledge about taxes. Moreover, the importance of education in the tax issue is confirmed by various studies researching the effects of tax literacy. Therefore, the UAE government needs to provide important information about tax decisions and their impact in an understandable way for its citizens. Highlighting the advantages of taxes and spending may boost compliance among citizens.
- Trust in the government. This recommendation covers several issues in the activities of the government. Its efforts should be aimed at the population’s well-being, and decisions should be carefully considered before adoption. Providing the people with the best services, developed infrastructure, health care, and supporting the economy contributes to high tax morality. Moreover, the government must maintain transparency and accountability in its actions. These measures are necessary for people to understand and trust their government’s actions. The sense of security provided by the state, support for equality, and faith in the system, push the population to the necessary compliance.
- Enforcement. Many theorists and researchers are confident that the possibility of detention and punishment for tax evasion is an effective measure to support compliance. However, the government should be cautious with this measure, as it may worsen relations with the population. Moreover, some studies prove that citizens’ understanding of their duties contributes more to the adherence to laws. Thus, a legal framework for organizing taxes is needed, but the measure should not be leading in ensuring tax morality.
Conclusion
In conclusion, tax morality significantly impacts the citizens’ compliance with tax laws. With the clear and transparent work of the government, tax revenues are directed to the well-being of the state and its population. Tax morality depends on education, social environment, level of education, understanding of tax issues, trust in the state, and similar factors. In 2018, the UAE adopted a law imposing a tax of 5% on final services and goods, and it is necessary to maintain high tax morality among the population. At the moment, most citizens support tax policy, believing that it is pretty fair. It is essential to inform citizens about taxes and maintain their trust in the government through honest and transparent work to keep a high level of morality.
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